Sen. Dan Watermeier

District 1

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The Appropriations Committee submitted their budget recommendations this past week to the full Legislature by the 40th legislative day, as required by legislative rule. The appropriations bills must be passed by the 50th day, which falls on March 29th this year. The appropriations bills presented this year are mid-biennium adjustments to the two-year budget passed last year for fiscal years 2015/16 and 2016/17, resulting in a net increase of $4.2 million.

Although the financial status at the end of the current biennium remains similar to what it was at the end of the last year’s session, it has fluctuated greatly during the past year. The projected status went from a positive $2.3 million to a negative $110 million after the Nebraska Economic Forecast Advisory Board reduced revenue projections by $154 million last October. This was partially offset by a lapse of unexpended appropriations, reductions in Medicaid, and a $13 million net gain when the Forecast Advisory Board met again in February, resulting in the current positive financial status of $10.1 million. However the projected status for the following biennium shows a $106 million shortfall. This volatility shows the necessity for keeping a sufficient balance in the cash reserve fund.

The $10.1 million figure is the amount of revenue above the required 3% minimum reserve, which is available to fund legislation with a fiscal impact. The reality of this figure makes it apparent that any substantial tax relief will require a tax shift or significant cuts in spending. Due to significant opposition from cities and counties, the Governor’s proposal for property tax relief will most likely not advance from the Revenue Committee as introduced. The intent of LB 958 was to slow down the increase in agricultural land valuation by limiting the state-wide increase to 3 percent per year and to slow the growth of property taxes levied by the political subdivisions. A related bill, LB 959, sought to slow the growth of spending and property taxes levied by school districts. Likewise, it has not been advanced by the Education Committee at this time.

The Appropriations Committee recommended funding three one-time projects from the cash reserve, reducing the balance by $91 million to $655 million. The transfers include $27.3 million to the Department of Corrections for adding capacity to the Lincoln Community Corrections Center, $13.7 million for the modification of two federal levee systems that impact the Offutt Air Force base, in an effort to help secure federal funding to rebuild Offutt’s deteriorating runway and keep the 55th Wing in Nebraska, and under LB 960, $50 million to fund the newly created Transportation Infrastructure Bank.

LB 960, as amended by the Appropriations Committee, creates three new programs funded by the $50 million transfer from the cash reserve fund. It also commits $400 million in additional fuel tax revenue generated by LB 610, passed by the Legislature last year. The Accelerated State Highway Capital Improvement Program will provide up-front money for major highway projects including the completion of the expressway system. The County Bridge Match Program will promote innovative solutions and provide additional funding to accelerate the repair and replacement of county bridges. Finally, the Economic Opportunity Program will finance transportation improvements to attract and support new businesses and business expansions.

Included in the budget recommendations, are amended versions of two of my bills. The first would provide a one-time $1.5 million appropriation to help with recruitment and retention of correctional staff, particularly at the Tecumseh State Correctional Institution. The other extended the current appropriations for deferred maintenance, repair, renovation and facility replacement construction projects at the three state colleges, thereby allowing for the Theater/Event Center project at Peru State College to proceed.

As legislators discuss the budget and other priority bills, I encourage your input. I can be reached at District #1, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My email address is dwatermeier@leg.ne.gov and my telephone number is (402) 471-2733.

The Legislature gave first-round approval to the budget bills that make adjustments to the biennial budget passed last year. The Appropriations Committee’s recommendations result in a net increase of $27,739 over the two-year period. However, this does not take into account other legislation with a fiscal impact. If all bills pending on the second and third stage of debate would happen to pass, spending would grow by approximately $44.5 million.

The Appropriations Committee’s budget recommendations included funding for increased costs due to prison overcrowding, funding to serve additional persons with developmental disabilities that are on the waiting list, increased funding for grants for the early childhood education program, and increased funding for our Medicaid match rate, due to a lower federal match rate, which is calculated based on a comparison of our personal per capita income compared with other states. These increased costs were almost entirely offset by reductions in expenses, such as lower costs than projected for the homestead exemption program and the state aid formula for schools.

Bills pending that could increase the spending above the Appropriations Committee’s recommendations include LB 725, which proposes to move the scheduled decrease in the local effort rate (LER) in the school state aid formula up one year. The LER was increased during the budget cutting years of the recession. LB 725 would add approximately $33 million to the budget. LB 986 proposes to increase the number of people that qualify for the homestead exemption by raising the income brackets.

Under the Appropriations Committee’s recommendations, the projected ending balance of the cash reserve fund is $697 million. Committee members made it a priority to leave a sufficient amount in the cash reserve fund, as this is what helped sustain our state during the recent recession, preventing the necessity of raising taxes when revenues fell. Furthermore, the committee emphasized that any use of the cash reserve fund should be for one-time items and not for projects requiring on-going support.

The Appropriations Committee recommended $65 million in transfers from the cash reserve fund. This includes $20 million for water projects, $15 million to state parks, $10 million for job training, $5 million to county jails to ease the burden of prison overcrowding, and $15 million for improvements at the State Capitol, including the replacement of the HVAC system, which is 50 years old and has outlived its predicted lifespan.

During debate on the budget bills, Senator Galen Hadley, chair of the Revenue Committee, offered an amendment to increase funding for the Property Tax Credit program by $20 million, in addition to the $25 million already proposed by the Appropriations Committee. His amendment lost on a 20-18 vote. The Property Tax Credit program was enacted in 2007 and has been funded at $115 million annually since 2008. Currently, a homeowner receives a $60.88 credit per $100,000 of value. The credit will increase to $74.11 under the committee’s proposal, but would have increased to $84.70 per $100,000 of value if the amendment would have been successful.

In addition to the property tax relief offered through the increase in the Property Tax Credit program and an expansion of the Homestead Exemption Program, the Legislature also gave first round approval to LB 987. This bill proposes to adjust individual income tax brackets for inflation and increases the number of persons who won’t be liable for income taxes on their social security income.

With approximately a month left in this legislative session, I encourage you to contact me with your thoughts and opinions. I can be reached at District #1, P.O. Box 94604, State Capitol, Lincoln, NE 68509. My email address is dwatermeier@leg.ne.gov and my telephone number is (402) 471-2733.